UK Law and Practice Contributed by: Sam Kay, Philippa List, Mark Stapleton and Nicolas Kokkinos, Dechert LLP
nership profits. No UK withholding taxes should apply to such payments. Listed Closed-Ended Funds – ITCs Tax position of the fund Companies with ITC status are subject to UK corporation tax, but (if certain conditions are met) are exempt from tax on capital gains and on profits of a capital nature from their derivative contracts and their creditor loan relationships. ITCs are also able to benefit from an elective interest streaming regime, which allows them to treat certain dividends to investors as interest distributions, enabling the ITC to claim a cor - poration tax deduction in respect of the interest distribution (if certain conditions are met). As a UK company, an ITC can also potentially ben - efit from the general UK company exemption from tax on dividends and other distributions received. No withholding tax should apply to dividends paid to investors by ITCs, including interest dis - tributions if the ITC enters into the elective inter - est streaming regime mentioned above. Tax position of the investor Investors in an ITC will be taxed on distribu - tions (other than interest distributions) from an ITC in the same way as dividends from normal companies. Therefore, UK tax resident individ - uals will be subject to income tax, at rates of up to 39.35%, and corporation taxpayers can potentially benefit from the general UK company exemption from tax on dividends. Interest distributions are, broadly, treated as interest receipts, so UK resident individuals will be subject to income tax (at rates of up to 45%), and corporation taxpayers will treat such distri - butions as if they were interest receipts under a
loan relationship under the corporate loan rela - tionship rules. Listed Closed-Ended Funds – REITs Tax position of the fund A REIT is tax opaque but, if certain conditions are met, benefits from an exemption from UK tax on profits and gains from its property rental business (PRB). Conditions with which a REIT must comply include that, broadly, at least 75% of its profits must come from its PRB, at least 75% of the total value of its assets must relate to its PRB, and it must distribute at least 90% of its PRB income within 12 months of the end of the accounting period in which it arose. There is no requirement for a REIT to distribute capital gains. Other detailed REIT conditions apply in the tax legislation, which also need to be considered. Distributions by REITs in respect of the profits and gains of their PRB are known as property income distributions (PIDs) and should be paid subject to withholding tax at the basic rate (20%), unless an exemption applies (eg, if the REIT has a reasonable belief that the person beneficially entitled to the payment is a com - pany that is resident in the UK for corporation tax purposes). REITs are subject to corporation tax in the usual way on any non-PRB profits (eg, trading prof - its). These can be paid out as dividends, without withholding tax. Tax position of the investor For corporation tax and income taxpayers, PIDs are generally treated as UK property income (ie, they are not treated as normal company distri - butions), so UK resident individuals are subject to income tax on them (at rates of up to 45%), and credit should be given for any tax withheld on payment of the PID by the REIT. Corpora -
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